Karbach Brewing

A bill that would force Texas breweries, once they’ve grown beyond a state-limited size, to sell and buy back their own beer before offering it in their own taprooms has now passed both houses of the state Legislature.

“To say that today’s outcome was incredibly disheartening would be to put it mildly,” the Texas Craft Brewers Guild said in a statement following a 19-to-10 vote in the Senate.

The House approved the measure May 6.

House Bill 3287 has been blasted as “anti-competitive,” “anti-beer” and a potential job killer by an unlikely coalition that includes Anheuser-Busch InBev and the state’s 200-plus craft brewers, which often find themselves at odds with the global giant. The Texas Association of Manufacturers and the conservative Texas Public Policy Foundation also opposed the measure.

The bill was supported by the state’s two distributor groups.

See here for the background. This all basically happened under the radar, when there was no organized grassroots efforts on behalf of the microbreweries. I suppose that says something about the power of the distributors’ lobbyists, but it’s also a reminder that what was won can be lost, and defense is at least as important a offense.

The Texas House on Saturday voted overwhelming to place new constraints on craft breweries that grow beyond a set size or become acquired by a larger beer company.

Supporters of House Bill 3287 also fought back efforts to amend the legislation to give craft brewers the right to sell some beer on site for consumers to take home – something the smaller brewers have tried to secure for years.

HB 3287, blasted as anti-competitive by critics, is opposed by the Texas Craft Brewers Guild and Anheuser-Busch InBev as well as pro-business groups and a conservative Texas think tank.

“Now we prepare for the Senate battle,” guild executive director Charles Vallhonrat said after the vote.

A 2013 package of laws gave breweries that produce less than 225,000 barrels of beer annually to sell up to 5,000 barrels directly to customers, who must drink the beer in the taproom before they leave.

As originally written, House Bill 3287 would have extended the prohibition against on-site sales to any brewery that is acquired by another company that collectively exceeds that limit.

That group includes Houston’s Karbach Brewing Co., acquired last fall by A-B InBev, which makes many of millions of barrels of Budweiser and other products across the globe.

A revision to the bill allows Karbach and the other larger breweries to continue to operate taprooms, but it would force them to sell their beer to a distributor and then buy it back for sale to the public.

The brewers say the bill would discourage investors and will hurt their ability to grow.

The only beneficiary, they say, are the distributors who already exert near-total control over how beer gets from producers to retailers.

Here’s an earlier version of this story from before the House vote and here for a story from two weeks ago when this was in committee. I can only presume the distributors were behind this bill, which should tell you all you need to know. I guess this should remind us all that despite the 2013 bill that allowed on-premises beer sales at microbreweries, the big beer distributors can still throw their weight around when they want to.

Fast-growing Karbach Brewing Co. of Houston is the latest U.S. craft brewery to be acquired by a global beer giant, announcing Thursday morning that Anheuser-BuschInBev is buying it for an undisclosed amount.

The 5-year-old Karbach will be part of the company’s U.S.-specific High End business unit, joining the likes of Stella Artois and Shock Top; Goose Island, Breckenridge, Elysian and five other craft breweries; a cider company; and a hard seltzer company.

Ken Goodman and longtime business partner Chuck Robertson, who founded the brewery in a building they formerly used in their beer distributorship on Karbach Street, said existing management and brewers will remain in place and the company will retain much of its independence while also gaining access to the resources that will help it continue to grow.

“The financial piece wasn’t that important at the end of the day,” Goodman said. “It was the resources.”

High End president Felipe Szpigel cited Karbach’s Love Street Kölsch as an example of a lower-alcohol, or “session,” beer that will fill a niche in the AB-InBev portfolio.

He said he first visited the Karbach brewery during a site visit to Houston about a year and a half ago and as he talked with the owners and brewers, “I really fell in love with what they are doing.”

Brewmaster Eric Warner said the move will allow his team to collaborate with those other craft breweries.

“The High End wants to see us innovate,” he said.

Szpigel and the Karbach team said they will continue to focus on developing the Texas market for the next couple of years.

I’m sure that quote about “resources” is a reference to the ABinBev distribution network, which is more a comment on Texas’ byzantine and archaic beer laws than anything else. I’m sure the Karbach founders (and I hope their employees) will nonetheless make a nice chunk of change off of this, and more power to them if they do, but a peek at their announcement of the deal on Facebook shows that the reaction from their customers is overwhelmingly negative. This is no surprise – ABinBev has openly mocked craft beers and the people who drink them in their advertising, and well, anyone who drinks Karbach almost certainly thinks ABinBev products are exactly what’s wrong with beer and the reason why breweries like Karbach needed to exist and have done so well. From a brand perspective, it’s at best a shotgun wedding and at worst a complete hash. I’m sure that Karbach will sell a lot more beer as a result of this deal. I just suspect that very little of that beer will be consumed by people who had ever drunk it before today. Swamplot and Houstonia have more.

A dispute over deposit fees for kegged beers could slow the flow of several craft brands, including a few that are made locally, at some of Houston’s best-known bars.

The issue boiled over this week when Silver Eagle Distributors instituted an unannounced 20 percent hike in the deposit it charges retailers when they purchase kegs filled with beer, local proprietors said.

Two said they will stop purchasing kegged beer from Silver Eagle, at least temporarily. Affected brands include Houston’s Saint Arnold, Karbach and 8th Wonder, and such national brands as Firestone-Walker and Sierra Nevada. Because of state laws governing how beer is sold in Texas, no other wholesalers are allowed to carry those beers in Houston.

“It’s a really hard decision,” said Kevin Floyd of the Montrose craft beer bar Hay Merchant, referring to the decision to not have the local beers on tap.

But he said the $10-per-keg increase, to $60, double what it was just a few years ago, has prompted him and other bar owners to act.

Although the deposit technically is refunded when a keg is returned to the distributor, the retailer typically doesn’t see the money because the credit is immediately applied to the next keg. Depending on the size of the bar, the deposits could tie up thousands of dollars.

“That’s money that’s just caught up,” said Ben Fullelove, owner of the Petrol Station in the Garden Oaks/Oak Forest area. “You’re not going to see that money again unless you close down.”

Fullelove, who usually has 70 to 100 kegs on hand from various distributors, said he will be out of those supplied by Silver Eagle by the end of the weekend and does not intend to purchase more unless the deposit hike is rescinded. He said he wants to support local breweries as well as the national brands his bar is known for carrying. But he, too, cited the steep increases over the last six years and said enough is enough.

“How does it end?” he said. “Suddenly I’m paying $100 a keg? $200 a keg after a year?”

In an emailed statement attributed to John Johnson, executive vice president of sales and marketing, Silver Eagle Distributors cited increases in the deposit fees it has to pay when it receives the kegs.

“These deposit fees are a standard operating procedure in the industry and from time to time are increased by suppliers, resulting in an increase by distributors,” the statement read. “As a result, Silver Eagle recently increased the amount of its refundable keg deposit.”

Hope this doesn’t ruin anyone’s dinner plans. For a perspective from one of the microbreweries affected by this, read what Scott Metzger of Freetail Brewing has to say. From my perspective, this just highlights another flaw in Texas’ byzantine tiered distributorship model for wholesale beer sales. In a sane world, there would be more than one way to get their beer from the breweries to the retailers. Microbreweries won some freedoms from the Legislature two years ago, but they still don’t operate in anything resembling a free market. This is just one illustration of that.

As we know, Houston has a lot of craft breweries, with the venerable Saint Arnold being the biggest, oldest, and best known. With the forthcoming opening of their new facility, I’d say Karbach is making a strong case to be next in the pecking order.

Karbach, founded four years ago by a pair of longtime distributors/importers who brought resources as well as experience to the enterprise, stands out even in an industry where rapid growth is the status quo and where production volume soared in double digits again last year.

In 2013, Karbach was cited in a New Yorker analysis as the second-fastest growing craft brewery in the U.S. and 2014 was a scorcher as well. Crews worked around the clock to brew 32,600 barrels of Hopadillo, Weisse Versa and other beers, and the only thing that kept them from making more was capacity.

The size of the new brewery, which faces Dacoma, around the corner from the original facility at 2032 Karbach, just outside Loop 610 in northwest Houston, addresses the immediate needs and leaves room to add on later. [Brewmaster Eric] Warner said the new equipment and automation upgrades also should improve quality and virtually eliminate inconsistencies between batches.

He and his team are already making beer there and plan to open the brewery to the public on or about May 15, slightly behind the originally announced first-quarter target date.

The facility goes live as the industry continues an enviable upward trajectory. In 2014, craft sales rocketed ahead 18 percent even as overall beer production rose a mere half-percent, the industry trade group reported at this month’s Craft Brewers Conference. A record 3,418 breweries are now in operation, figures compiled by the Brewers Association show, and 2,051 more were in the planning stages as of Dec. 31.

Across greater Houston, 29 brewery and brewpub licenses are on file with the state and most of those operations are up and running. In addition, strong brands from other states continue to expand into Texas.

Warner, who came to Houston in 2011 with a nationally recognized résumé in craft brewing, sounded nothing but confident about Karbach’s growth plans in this environment.

“Craft is here to stay,” he said. “I have no doubt about that. Craft is growing and will continue to take share.”

The primary challenge ahead will be to maintain shelf space at stores and tap handles in bars and restaurants, Warner said. In that regard, he thinks high-quality local brands will have a distinct advantage. He said Karbach plans to expand to the Dallas area this year but has no out-of-state plans until at least 2017.

“There are 30 million people in Texas,” Warner said. “A lot of beer drinkers.”

Another potential challenge, he added, would be if global giants such as Anheuser-Busch InBev, which last year made 13 million barrels of beer at its Houston plant alone, stop “dabbling” in craft beer styles and begin competing seriously with the Karbachs and Saint Arnolds.

Again, Warner sounded confident about the future, describing his company’s success in less than four year as “surreal.” He readily acknowledges the advantages Karbach has over many of the young breweries that are starting with far less capital.

I like Karbach, though Saint Arnold is still my favorite locally. I do need to take a tour of their new facility, which is one of several near where I live. As far as the macrobrewery threat is concerned, I just don’t see the AB-InBevs of the world seriously competing in that space. It’s not who they are, and I don’t see the type of person who drinks craft beer being lured to a craft beer-style product they might market. I think it’s more likely the big boys might try to buy up a bunch of craft brewers, like Microsoft or Google acquiring startups. I don’t know why they haven’t been doing that all along, to be honest. Be that as it may, congrats to Karbach on the new digs, and best of luck with the restaurant venture.

Several local brewery construction projects headed for completion in 2015 are designed to draw in visitors as well as ship beer out the door.

The neighborhood-centric Town In City Brewing Co. in the Heights could open in February, co-owner Justin Engle said earlier this week, as workers poured and leveled concrete for sidewalks and a driveway entrance into the startup brewery at 1125 W. Cavalcade.

In addition to selling beer to other retailers, Town In City will open each Wednesday through Sunday for customers to buy beer that they can drink in its 700-square-foot taproom or 1,400-square-foot outdoor beer garden. Food trucks will be invited on-site, and there will be a dedicated secure bicycle parking area.

Engle said the goal is to create a neighborhood gathering spot like many of the breweries he enjoyed visiting when he lived in Colorado. He’d prefer a steady daily business to a more crowded once-a-week tour.

Engle and partner Steven Macalello bought a vacant lot on Cavalcade, between Main and Airline, and built a brewhouse with initial capacity of 2,300 barrels of beer a year. Watching over the final concrete pour was a major step for a project that began more than 3½ years ago.

“I’m ecstatic,” Engle said.

Meanwhile, Brash Brewing, at 510 W. Crosstimbers in Independence Heights, also could begin producing beer in February. Owner Ben Fullelove said the brewery plans to install glycol lines for chilling next week and get a final city inspection soon after. It’s licensed as a brewpub, though Fullelove said it won’t be open to the public right away.

“We are almost done,” he said in an email.

Although its beers have been brewed under contract in Massachusetts since 2012, Brash has strong Houston roots. Fullelove founded craft beer hot spot Petrol Station, and he hired Vince Mandeville, formerly of Saint Arnold, as head brewer for the local operation.

[…]

Last spring, Karbach broke ground on a $15 million project that will do more than just boost capacity.

The project, facing Dacoma on a 1.2-acre tract adjacent to the current brewery at 2032 Karbach, includes not only a new 19,000-square-foot, two-story brewery but also a public tap room and kitchen that will be open daily, plus space upstairs that will be available for special events.

Spokesman David Graham said Karbach hopes to open the space around the end of the first quarter.

I’ve highlighted these three breweries, plus Buffalo Bayou Brewing, on the embedded map. All are within about ten minutes of my house, with Buffalo Bayou and Town In City both being within biking distance. City Acres up on 59 North isn’t too far away either. I’m thinking I need to plan a few weekend beer tastings once the weather gets warm and all these places are open. Sounds like a good reason to get out of the house and hang out with some friends. For all that could be better in the world today, we do live in prosperous times.

Fast-growing Karbach Brewing Co. intends next year to build a new brewery that will give it the capacity to make three times as much beer as it has made in 2013 and, eventually, several times that.

The $15 million project, to be announced Tuesday, will begin with a 1.2-acre tract adjacent to the current brewery at 2032 Karbach. The 19,000-square-foot, two-story facility will include a public tap room and kitchen that will be open daily and space upstairs that will be available for special events.

It also will include a brewhouse from German manufacturer Ziemann that is four times as large as the existing one, modern storage areas for grain and yeast and a laboratory for quality control testing.

Brewmaster Eric Warner said he expects to be brewing test batches in the new place next October or November and producing beer for sale in early 2015. He said stronger-than-expected growth has put Karbach on an “aggressive timeline” to get the facility ready to keep pace with demand.

“It’s just nuts,” Warner, a well-known figure in craft brewing before he arrived in Houston from Colorado 21/2 years ago, said of the red-hot market for craft beer here. “I’ve never seen anything like that.”

Karbach’s growth is rare even in the exploding craft segment, said Julia Herz, craft beer program director for the Brewers Association trade group. With expected production of 19,000 barrels for 2013, Karbach is in the midsize group that starts at 15,001 barrels and goes up to 6 million.

Of the nation’s 2,600 craft breweries and brewpubs, only 120 are in that category. Herz said it typically takes startup breweries much longer to reach that status.

[…]

Warner said Karbach considered going outside the city limits, where property is less expensive, but determined Houston is the better environment for a brewery. As land became available around the existing plant, the decision was easy, he said.

Preliminary renderings show a handsome brick façade and steel building facing Dacoma with outdoor seating and an upstairs balcony, with views of the brewing and fermentation areas.

The front part of the downstairs will be largely for the public, who will be able to purchase beer for consumption on site thanks to recent changes in state law. Warner said the food menu won’t be extensive but will include items made with locally sourced ingredients.

Yes, another success of the craft beer legislation that finally passed the Legislature this time around. We’ll be celebrating that victory – and, I hope, adding on to it – for many years. I’m glad to hear that Karbach decided to stay within the city limits, too. I look forward to seeing the new place. Best of luck to them with construction.

Whatever you think of the vetoes or the special session action, this is unequivocally good news.

Happy hour started Friday afternoon for Texas brewers.

Gov. Rick Perry signed five bills representing the most comprehensive overhaul in two decades of how beer is packaged and sold across the state.

Thus, effective immediately, shipping breweries such as Houston’s Saint Arnold can sell a set amount of beer directly to customers, although they must consume it on-site.

And brewpubs like San Antonio’s Freetail can package and sell some of their products for distribution in other retail outlets. The latter change gives Texas restaurants that make their own beer the same ability to sell off-site as many out-of-state brewpubs.

“This is a great moment for craft brewers in Texas,” Saint Arnold founder Brock Wagner said. “It’s the first real reform we’ve seen in beer law, for craft brewers, since the brewpub bill.” He referred to the 1993 legislation that authorized licensed restaurants to make and sell beer for sale on-site.

The Texas Craft Brewers Guild hailed the signings as a “progressive step forward in making Texas the epicenter of craft beer development and growth” and predicted the law changes will mean not just more beer on store shelves but also “more jobs for Texans, increased tourism and greater tax revenue for the state.”

In Houston, the law allowing on-site consumption at shipping breweries would have the biggest immediate potential impact. Saint Arnold, for example, plans to begin offering “special and limited edition brews” for sale during its weekday and Saturday tours.

The basic tour at Saint Arnold’s won’t change – they’re not going to fool around with something that’s been such a success for them. Saint Arnold may start adding other events at which beer will be sold. I suspect there will be a lot of experimenting, and that’s just fine. The brewers and the brewpubs have been given a lot of new latitude, and it will take them awhile to figure out how best to take advantage of it for themselves.

Saint Arnold is the biggest player in the microbrewery space around here, but there are plenty of others now. One of them is Karbach, which hasn’t decided yet what it will do now that it can sell beer on premise. Karbach has been growing like gangbusters lately, so the new freedom they’ve been given comes at a great time for them.

Karbach Brewing Co., one of the nation’s fastest-growing craft breweries, has signed a distribution deal that will significantly expand its availability in stores, bars and restaurants from Beaumont to Galveston to Victoria.

In a separate deal, the Houston brewery also will begin selling beer in San Antonio next month, co-founder Ken Goodman said Wednesday.

To meet the anticipated demand, Karbach is completing a major expansion of its northwest Houston plant that will give it capacity to produce and sell up to 40,000 barrels annually, up from 15,000 barrels.

Karbach, which began sales in August 2011, produced more than 8,000 barrels in 2012, well ahead of internal forecasts. Goodman said he expects to sell 18,000 to 20,000 barrels this year.

That will include new sales in 17 counties across Southeast Texas through a distribution arrangement announced Wednesday with Del Papa Distributing Co.

Karbach had been delivering some beers on its own in a limited area, but the Del Papa deal will put year-round and special-release beers in a wider variety of stores and bars.

According to some research done by The New Yorker, based on newly released 2012 data gathered by the Brewers Association, Karbach was the second-fastest growing brewery in the country from 2011 to 2012, with sales increasing by a phenomenal 1112% over that year. You have to start at a pretty low level to grow tenfold, but still, that’s impressive. Overall, craft brewery production increased by 14% in the state, though the total volume of over 770,000 barrels is still peanuts compared to what an Anheuser Busch produces in a year. One reason why there’s been such growth is because there’s plenty of room for it. Texas is only 41st in the country in craft breweries per capita. A whole lot more of these places could open before the market even approaches saturation.

One more thing:

The brewers guild released new figures Friday showing that craft beer production in Texas was up 42 percent last year compared with 2011. It estimated the industry’s economic impact in the state was $737 million in 2012.

“Texas craft beer now accounts for an estimated 0.98 percent of all beer consumed in Texas, but it employs 59.7 percent of the people who work in breweries in the state,” it said.

In a biting opening salvo, a trade group for the nation’s craft brewers on Thursday accused Anheuser-Busch InBev and other major manufacturers of “deliberately attempting to blur the lines between their crafty, craft-like beers and true craft beers from today’s small and independent brewers.”

“We call for transparency in brand ownership and for information to be clearly presented in a way that allows beer drinkers to make an informed choice about who brewed the beer they are drinking,” the Colorado-based Brewers Association said.

The group singled out Blue Moon and the Shock Top line. Those popular beers are owned and produced by, respectively, SABMiller, the same company that makes Miller Lite, and AB-InBev, the Belgium-based purveyor of the ubiquitous Budweiser and Bud Lite.

“You would not know that from looking at the labels,” said Julia Herz, craft beer director for the Brewers Association, which represents such locally owned breweries as Saint Arnold, Southern Star, No Label and Karbach.

There’s more information from the Brewers Association here and here. I don’t think it’s asking a lot to clearly state on the label that thus-and-such beer is a product of whichever brewery. A lot of people are choosy about which businesses they support and which they don’t. More generally, I favor customers getting full information about the products they buy. How can you make an informed choice if you don’t have all the relevant information? Beer, TX has more.

Saint Arnold Brewing Co., the city’s oldest craft, has 43 employees and is in the midst of hiring at least three more, founder Brock Wagner said. That is about double the staff before production shifted to a new brewery with more capacity 2½ years ago.

“We’ve been able to turn it into a place where you can have a career,” Wagner said, noting such benefits as fully paid health care, a generous 401(k)-match program and paid vacations.

The employment growth is actually greater considering that several volunteers who used to help set up Saturday tours at the original brewery were given paid part-time positions to handle the weekday and Saturday tours at the new place.

Karbach Brewing, which marked its one-year anniversary Sept. 1, already has tripled its staff, from the original seven.

In a speech during last month’s Great American Beer Festival in Denver, Colorado Gov. John Hickenlooper noted this statistic from the Colorado Brewers Guild: While craft beer accounts for less than 5 percent of beer produced in that state, the 150 craft breweries there provide 64 percent of the brewing jobs.

That’s because major breweries, like Houston’s Anheuser-Busch plant, produce millions of barrels annually, compared with the Saint Arnolds and Karbachs in the tens of thousands of barrels. The difference in scale enables the big players to utilize a lot of cost-saving efficiencies.

Fougeron and other supporters say this laborious process results in better-tasting beers and more diversity for consumers.

In other words, the big breweries rely on automation, while the microbreweries rely on people. That’s a formula for more jobs, many of which are for skilled people. This story refers to a study of the economic impact of microbreweries, which could be a lot if the Legislature would finally do something about those archaic restrictions on selling beer. The microbrewers have a strategy, and they’ve done a good job getting their story told in the media. It’s got to happen one of these days, doesn’t it?

If each opens as planned, Buffalo Bayou, 8th Wonder and Yard Sale Brewing companies would bring to eight the number of plants making beer within an hour’s drive of downtown Houston, up from two less than four years ago.

The newcomers hope to profit from the continued migration of U.S. beer consumers away from the established, internationally owned conglomerates MillerCoors and Anheuser-Busch InBev, which runs a large Houston operation.

[…]

The 8th Wonder crew has signed a five-year lease on a 5,000-square-foot space on the east side of downtown, within walking distance of Toyota Center and the Dynamo soccer stadium under construction. By opening the warehouse for tours and parking food trucks across the street, it seeks to be “some sort of tailgate presence” on game days, president and co-founder Ryan Soroka said.

Soroka, 27, and brewmaster Corsi, 31, are joined in the effort by executive chef Matt Marcus, 28, and chief financial officer Alex Vassilakidis, 27. They’ve been quietly raising funds through friends and family and are in the midst of getting their state and federal alcohol licenses and local business permits.

Soroka, Marcus and Vassilakidis have known each other since childhood in Houston and are partners in the successful Eatsie Boys operation, catering to the downtown lunch crowd, farmers markets and occasional excursions outside bars. They plan to open their brewery in the first quarter of 2012 with three beers: an India pale ale, an amber ale and a blonde ale.

Buffalo Bayou is a bit farther along, with some tanks awaiting installation at a 7,800-square-foot space south of Interstate 10, near Washington Avenue. It expects to start selling its first beer, a “copper ale,” by year-end.

[…]

Yard Sale Brewing founders Justin Engle, 28, and Steven Macalello, 27, seek an even more intimate neighborhood setting, perhaps in a renovated Heights bungalow or other architecturally interesting structure. They have chosen a smaller brewing system and want to offer daily “happy hour” tours in addition to self-distributing their beers to local bars and restaurants.

These are good days to be a beer drinker in Houston. I wish them and all their microbrewing predecessors well.

Eric Warner was at the well-regarded Flying Dog Brewery in Colorado for a decade, as brewmaster and then as chief executive. While there, the brewery came out with such beers as Snake Dog IPA, Double Dog double pale ale, Gonzo Imperial Porter and Dogtoberfest Märzen.

By the time Flying Dog moved production to Maryland and Warner left the company in 2008, Flying Dog was a national brand with annual production of 50,000 barrels, up from 10,000 when he started.

Now the 47-year-old is bringing his talent, a quarter-century’s brewing experience and his interest in startups to Houston.

Karbach Brewing Co. has brewing equipment on site, in a warehouse under renovation in the same U.S. 290/Loop 610 West part of town where Saint Arnold started.

Warner said the company will have more than $1 million invested in the brewery by the time it begins operations in late July or August.

“Hopefully, people can take a couple of six-packs of Karbach beer to the Thanksgiving table,” Warner said one recent morning, while making a test batch of “Weisse Versa” wheat beer that will be among three year-round offerings.